IBM: Officially No Longer the Bellwether

It used to be that IBM was the bellwether for the technology industry.  As went IBM, so went the industry.  Of course, for the early years of my involvement in technology, IBM was the technology industry, or a sufficiently large percentage of it that this was almost a tautological statement.  IBM had its fingers in everything.  Literally everything.

No longer is any of this true.  IBM isn’t in everything.  For us old-timers, it’s still hard to think of IBM as first and foremost a services company but that’s clearly what it is.  For my career, November of 1981 was a watershed moment, when IBM introduced its original PC.  I spent much of the the next 20+ years of my life chronicling the evolution and revolution that IBM fomented with that introduction.  But that’s not the IBM of today.  They long ago lost the standards-bearing battle in the industry they effectively launched and today don’t even make PCs any more.

What causes me to reflect on this is IBM’s remarkably strong earnings announcement of yesterday.  Does their strength bode well for anyone else in the industry or has IBM in fact become a leading negative indicator?  IBM’s strength is due to a few factors:

• Increased outsourcing, driven by staff reductions and demand for much greater flexibility.
• The early impact of the Satyam affair and subsequent deep questions about the Indian outsourcing industry overall.  Already the economy was driving consideration of “near-sourcing” and IBM was starting to benefit from that.  The Indian affair, while late in the quarter, only added to the IBM momentum and is certainly a factor in their rosy outlook.
• Even mainframes performed well, as customers look to significantly consolidate their hardware expenditures on more heavily utilized machinery.  While virtualization is likely to be the biggest winner in this space, better leveraging the installed base, IBM showed that there’s at least some strength in new sales of a more mature solution.

This is all happening against the following backdrop:

• Intel reported dramatically reduced earnings;
• Oracle had a rare layoff; and
• Microsoft is rumored to be contemplating layoffs, a rumor in which we place great credence.  They announce earnings tomorrow and a workforce reduction announcement is likely to accompany the earnings report.

Clearly, IBM is no longer the tech bellwether.  I’m not prepared to call them a negative indicator because I can contemplate scenarios under which IBM performs well even while the sector recovers broadly.  But don’t look to IBM for hints where technology is going.  For better (now) or worse, IBM is off on a different trajectory.  It used to be said that “as goes GM, so goes America.”  Let’s hope not as the announcement came today that for the first time in over 80 years, GM did not sell the most cars in the world — Toyota did.  So too it used to be the maxim that “as goes IBM, so goes technology.”  No longer, and never again.

Cisco Servers

Cisco has, finally, signaled its intention to enter the server market.  Predictably, Cisco is not talking about a “me too” product but rather one that incorporates a key disruptive technology, virtualization.  Much of the early Wall Street discussion has focused on the negative impact servers will have on Cisco’s margins.  (HP and IBM only generate about 40% of the profit margin in servers that Cisco has been able to generate in its core markets.)  I’m sure in the short term, Wall Street is right…but as is so often the case, this misses the long-term implications which make this an essential move for Cisco.

Why is this right for Cisco?

• While the communications gear market still is a good market, with strong growth driven by new and higher bandwidth-intensive uses of the Internet, inevitably Cisco’s growth rates in this space are going to slow.
• Cisco is going to face competition in its core markets from IBM and HP.  Why is it unreasonable, therefore, for them to compete in HP and IBM’s core markets?
• Cisco has played the co-opetition game as well as any and better than most.  If anyone can “play nice” with Microsoft, HP and IBM while also competing with them, it’s Cisco’s John Chambers.
• Disruptive technologies create opportunities for new market entrants to redefine the rules of competition.  I expect Cisco will not take a “me too” approach to solutions in the “server market.”  I instead expect them to continue to blur the distinction between computing and communications, much as has been going on for the better part of a decade or more.

This move has the fingerprints of new CTO Padmasree Warrior all over it.  I was famliar with Warrior when I was at Hill & Knowlton and Warrior was CTO at Motorola, an H&K client.  She had an expansive vision of technology but clearly the product issues at Motorola hamstrung her ability to deliver on the vision.  At Cisco, not only does she not have such constraints, she has certainly found a comrade-in-arms in Chambers.  Soon, Cisco will have as broad a portfolio and ambition as any company, extending from communications to servers to operating systems to applications, in business as well as the home.

This is just another inevitable step in Cisco’s moves and ambitions to become a total computing and communications technology and solution provider.

Timely, Pithy and Witty News and Analysis

I may as well get ambitious.  With nothing but time on my hands right now, I’m going to model this blog on ESPN’s Pardon the Interruption.  If you’re not familiar with that program, hosts Tony Kornheiser and Michael Wilbon machine-gun through the sports news and analysis of the day with the most literate commentary on sports around.  (Yes, I understand that’s a pretty low standard there, at least on the sports side of things.)

I’ll try to provide my unique perspective on the top 5-10 news stories of the day.  For longer commentary on disruptive technologies, see my other blog at Doctor Disruptive.